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Loyalty rewards vs retail discounts: What is better?

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All business owners are constantly on the lookout for new ways to attract and retain customers.

But how?

Before the advent of e-commerce and online shopping, discounts – advertised in multiple media outlets – were the accepted norms for attracting a potential customer’s attention at the start of their purchase journey.

But times have changed, and so have habits.

Offering one-off discounts has lost its appeal with retailers who have come to realize that reduced prices might also mean reduced customer numbers, and reduced respect for their brand.

Flexible loyalty rewards programs (or points programs) are proving to be the most valuable tool for growing a business and retaining customers in the long term.

A rewards program, compared to one-off discounts, strengthens a brand’s connection with the customer, promotes loyalty, and improves customer retention and lifetime value.

But let’s find out why.

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What’s the difference between loyalty rewards and discounts?

When it comes to online stores offering discounts or rewards in exchange for your loyalty, does it make you nervous?

If it does make you nervous – handing over too much personal information, or you’re worried that prices have been falsely inflated just to be reduced to get your attention – you’re not alone.

Many online stores will do whatever it takes to capture repeat customers, some by scrupulous means, some not so scrupulous. But how are you supposed to know the difference?

They say that forewarned is forearmed, and they’re right. 

That’s why the first place we should start our little journey of discovery is knowing the difference between loyalty rewards programs and cash discounts.

Let’s go.

Discounts

In essence, offering discounts is a quick way for stores to increase sales, clear dated stock lines, and grab the attention of potential customers.

Offering discounts on products might have the desired effect in the short term, but customers will soon get tired of coming back and looking for similar discounts only to find they don’t exist.

There are two main ways in which discounts are offered by online retailers and service providers.

In the first scenario, discounts can be offered by the company itself – 25% off your next purchase of Brand X.

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In the second scenario, one central marketing company partners with online retailers to centralize and consolidate the discount process in the form of coupons, vouchers, and codes.

Both scenarios involve offering customers discounts for making a single purchase. However, it can be argued that they do nothing to increase customer loyalty or offer any usable marketing metrics to the retailer that will help grow the business.

In fact, offering discounts in either of these ways does little to promote product value, increase customer trust or promote loyalty, and is detrimental to maintaining price integrity.

Typical discount examples

     

      • Percentages – 25% OFF – prices are often increased falsely

      • Buy one get one free – second product may be of a lesser value or quality

      • Discounts for paying early – pay within X days to receive 10% OFF

      • Seasonal stock clearances – unsold stock costs money (Ask yourself why it was unsold?)

      • Free delivery discounts – might be subject to a minimum order value

      • Bulk buying with discount – ask yourself, do you really need 100 of anything?

      • Referral discounts – usually referred by a friend to buy something that they wanted in the first place

      • Email/newsletter sign-up discounts – one of the better options

      • Trade-in discounts – return anything from electrical appliances to cars to receive a trade-in discount

    People become loyal to the discount and not the brand.

    Rewards programs

    Unlike offering discounts for a single purchase, rewards programs – or points programs – reward customers for repeat transactions.

    Using the example of a leading rewards program like Monetha, Monetha members earn points for every purchase they make in exchange for shopping with a group of diverse hand-selected merchant partners.

    The points earned can then be exchanged for gift cards from thousands of the world’s top brands, or they may be used to invest in cryptocurrencies, or even used to donate to a selection of trustworthy international charities.

    This offers the shopper the flexibility to choose the reward that suits them – sports equipment, fashion goods, electrical goods, games and entertainment, car hire, holidays, flights, and much more.

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    By offering flexible rewards, the retailer or service provider builds brand loyalty and long-term visibility in the process. 

    And rather than exploiting the information provided when applying for cash discounts – yes, in some discount programs your data is sold to the highest bidder – rewards programs use the customer’s information solely to create a more personal shopping experience to enhance the customer’s purchasing journey.

    And don’t forget, the metrics and information you get from your rewards program members help you to deliver an even more personalized service. 

    Through sign-up information, surveys, and satisfaction studies you’ll learn just what it is that your customer wants, needs, and expects.

    Rewards might include

    • Gift cards – offer the flexibility to choose your own reward
    • Invest in cryptocurrencies – a novel way of entering the cryptocurrency market
    • Make donations to charity – if you don’t want the reward for yourself, why not give it to someone that does?
    • Exclusive products – encourages loyalty to complete a collection
    • VIP experiences – some retailers match the experience to their goods or service
    • Exclusive access to new products – be the first to own the new XYZ
    • Sale access – be first in line for exclusive members-only sales

    According to a report in The Economist, ‘Shoppers… much prefer getting something extra free than getting something cheaper.’

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    Why loyalty rewards are better than discounts

    Online stores, traditional retailers, and all kinds of services seek the same holy grail, repeat customers who remain loyal to their brand.

    Since the advent of online retailing, store owners are discovering that offering discounts is no longer a match for a flexible rewards program.

    According to a report by the business financing company Credibly, regarding rewards programs versus discounts, they had the following to say. “…discounting your product can actually end up devaluing your brand. Loyalty programs, on the other hand, incentivize customers to build loyalty to your brand rather than the latest deal. To benefit from the loyalty program, customers have to stay the course and become [aa] regular customers.”

    10 ways reward programs are better than discounts

    1. It creates an emotional connection – creative rewards create positive connections
    2. Customers prefer flexible rewards – 64% of consumers want brands to connect with them
    3. Rewards highlight your product and not your discount
    4. Reward program customers return and increase awareness of your brand
    5. Reduced prices lower price integrity – this lowers the perceived value of your product or service
    6. Opposingly, rewards programs increase perceived value – like an exclusive membership
    7. Being part of a rewards program increases buyer satisfaction – check out this article by The Decision Lab about mental accounting and purchasing habits
    8. Reward programs increase trust – tailored rewards programs show that you appreciate your customer, this builds mutual trust and respect
    9. Being part of a rewards program helps form a positive impression – it’s psychology, and you can read about it here
    10. Experiences are the new ‘material things’ and rewards programs are part of the new experience economy – being part of something like a rewards program is being part of an actual experience

    Conclusion – why reward programs are here to stay

    Discounts might get shoppers flocking to the checkout for a limited period, but that’s where the experience ends.

    Reward programs offer far more to a business than having discount shoppers who make a one-off purchase and are never seen again.

    The real benefits of reward programs come with the lasting value they provide in the form of loyalty, flexibility, brand value, brand visibility, customer experiences, feedback, emotional connection, and much more. 

    Rewards programs are a bit like this.

    If you won a prize, wouldn’t you prefer to be able to choose from thousands of prizes and pick the one that suits you best? 

    That’s exactly what being part of a rewards program like Monetha gives the shopper – choice.

    One-off discounts may have their place in clearing unsold stock or topping up the cash flow. But if you want your customers to come back again and again with repeat orders, the future of online retailing belongs to rewards programs.

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    Boost your average order value, drive repeat purchases, maximize your profits, and more – integrate loyalty program with Monetha!

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